How to Choose Instruments and Set Portfolio Allocation

01 Types of ETFs

What ETFs are there and what do they mean?

In the calculator you will see dozens of instruments with names like "MSCI World", "S&P 500" or "FTSE All-World". What do these actually mean and how are they different?

Stock ETFs — broad indices

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MSCI World / FTSE All-World

A basket of 1,500–3,700 stocks from developed and emerging countries. The most diversified option — USA, Europe, Asia, all in one ETF. Historical return: around 8–10% per year. Examples: VWCE (Vanguard), IUSQ (iShares).

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S&P 500

The 500 largest companies listed in the United States — Apple, Microsoft, Amazon, Nvidia and others. The most popular ETF in the world. Historical return: around 10–11% per year. Examples: VOO (Vanguard), CSPX (iShares), SXR8 (iShares).

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MSCI Emerging Markets

Stocks from emerging markets: China, India, Brazil, South Korea. Higher growth potential than developed markets, but also higher risk and volatility. Often added to complement MSCI World (which has little EM exposure).

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MSCI Europe / STOXX 600

Stocks of European companies. Cheaper in valuation than the US market, different sectors (more finance, industry, less tech). A good way to reduce US dominance in your portfolio.

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Sector and thematic ETFs

Focused on a specific industry: technology (QQQ/NASDAQ-100), healthcare, energy, AI. Higher risk — you are betting on one sector instead of the whole market. Suitable as a small addition to a diversified portfolio, not as a base.

MSCI World and S&P 500 overlap heavily — the USA makes up around 65–70% of MSCI World. By choosing MSCI World you automatically have a large chunk of S&P 500 inside. You do not need to buy both.

02 Picking an ETF

Which ETF should you choose?

There is no single right answer for everyone. But there are a few rules that make the choice much simpler.

For most investors: MSCI World or S&P 500

If you are not sure where to start — one MSCI World or S&P 500 ETF is a complete, diversified portfolio. Simple rule: the more broadly diversified the ETF, the less you can go wrong. Companies in the index change on their own — weaker ones drop out, stronger ones enter.

MSCI World / FTSE All-World

Exposure to 23+ countries at once

Lower currency and regional risk

Slightly lower historical return than S&P 500 alone

Good choice when you want maximum diversification

S&P 500

Higher historical return (10–11% vs 8–10%)

Most liquid and cheapest ETF on the market

Heavy concentration on USA (~100%)

Good when you accept US dominance in your portfolio

How to check TER and pick the cheapest option

1

Find an ETF for a given index

One index (e.g. MSCI World) can have several different ETFs from different providers (Vanguard, iShares, SPDR). They all track the same index — they differ in TER, size and liquidity.

2

Compare TER

Pick the ETF with the lowest TER — that is the annual management fee. For global ETFs a good TER is 0.07–0.22%. The difference between a TER of 0.07% and 0.5% over 20 years is worth thousands on a larger portfolio.

3

Check that it is accumulating (ACC)

Look for ACC or Acc in the name. An accumulating ETF reinvests dividends automatically — you do not pay tax on each payout, and compound interest works at full power.

Examples of cheap ETFs: VWCE (FTSE All-World, TER 0.22%), IUSQ (MSCI World, TER 0.20%), SXR8 (S&P 500, TER 0.07%), EUNA (global bonds, TER 0.10%). Available on most European brokerage platforms.

03 Bonds and gold

Bonds and gold — are they worth adding?

The question of bonds and gold comes down to how much you want to stabilise your portfolio at the cost of potentially lower long-term returns.

Bonds — when do they make sense?

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Add bonds if...

You have a horizon shorter than 10 years, or you know that panic-selling during a crash is a real risk for you. Bonds cushion drops — a 60% stocks / 40% bonds portfolio typically loses about half as much in a crisis as a pure stock portfolio.

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Skip bonds if...

You have a horizon of 15+ years and you can calmly sit through a temporary 40% drop in your portfolio. Over the long term bonds historically reduce the final result significantly — over 30 years the difference between 100% stocks and a 60/40 portfolio is often tens of percent of the final amount.

Gold — does it make sense in a portfolio?

Gold is a special instrument — it generates no income, pays no dividends, but its price often rises when stocks fall. It acts as a hedge in a portfolio.

Gold — advantages

Rises when stock markets are in panic

Protects against inflation over the long term

Reduces overall portfolio volatility

Gold — disadvantages

No dividends or income from holding

Long periods of flat price (10–15 years)

Weaker long-term return than stocks

Practical rule: If you want gold at all, keep 5–10% of your portfolio — enough to smooth out swings, but not so much that it significantly lowers your long-term return. Above 15% is essentially speculation on the gold price.

04 Allocation

How to set the percentage allocation?

Allocation is the answer to: what percentage of your portfolio should each instrument take up? This is one of the most important decisions — it has more impact on your result than picking a specific ETF.

Three example allocations

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Simple portfolio (1 ETF)

100% MSCI World or S&P 500. One ETF, no decisions, maximum geographic diversification. Ideal for beginners and people with a long horizon. Less admin, fewer mistakes.

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Balanced portfolio (2–3 ETFs)

Example: 70% MSCI World + 20% global bonds + 10% gold. Lower risk than pure stocks, but also lower expected return. Good when your horizon is 5–15 years or you know large swings are hard for you.

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Aggressive portfolio (2–4 ETFs)

Example: 60% MSCI World + 25% S&P 500 + 15% MSCI Emerging Markets. Large growth exposure, no stabilisers. Suitable with a 20+ year horizon and willingness to accept temporary drops of 40–50%.

Watch out for overlapping ETFs. MSCI World + S&P 500 is not diversification — it is doubling your US exposure. Instead combine: MSCI World with bonds, or MSCI World with Emerging Markets — that gives real variety.

05 Portfolio balance

How to tell if your portfolio is well-built?

A balanced portfolio is not always fifty-fifty — it is a portfolio matched to your goals and horizon. Here is how to check whether yours is well-built.

1

Check the risk rating in the calculator

After building your portfolio in the calculator you will see a risk rating on a scale of 1–5. Level 1–2 is conservative (lots of bonds), 3 is moderate, 4–5 is aggressive (lots of stocks and crypto). Check whether it matches your time horizon.

2

Check geography and sectors

Is one country or sector dominating your portfolio? Example: MSCI World + S&P 500 = effectively 100% USA, because S&P 500 is already inside MSCI World. That is not diversification — it is the illusion of it. Add Europe, Asia or emerging markets to truly spread the risk.

3

Run the Monte Carlo simulation

The Monte Carlo simulation in the calculator shows the range of possible outcomes — from pessimistic to optimistic. If the pessimistic scenario (P10) is unacceptable to you, your portfolio is too risky.

4

Review historical crashes

In the historical crashes section you will see how your specific portfolio would have behaved during each major crisis. If the simulated 2008 drop gives you a heart attack — reduce your stock exposure.

5

Check the total allocation

Suma wszystkich instrumentów musi wynosić dokładnie 100%. Jeśli suma jest inna, kalkulator zaalarmuje Cię czerwonym paskiem. Wyrównaj alokacje lub użyj przycisku „Wyrównaj" żeby podzielić równo.

All instruments must add up to exactly 100%. If the total is wrong, the calculator will warn you with a red bar. Adjust your allocations or use the "Balance

You do not need a complicated portfolio to be balanced. One global ETF (MSCI World) at 100% is perfectly diversified geographically, by sector and by currency. Simplicity is a strength — fewer decisions, fewer mistakes.